As a participant for 36 years in the U.S. stock market, I’ve learned to look for watershed events that must be respected by investors. A watershed event is a point in time where a major secular change takes place. Britain’s vote to leave the European Union appears to be one of those events. We’d like to use the poetry of Don McLean in his song “American Pie” to help our readers understand our view.1

“A long, long time ago
I can still remember how that music used to make me smile
And I knew if I had my chance
That I could make those people dance
And maybe they’d be happy for a while”

We at Smead Capital Management have argued that investors should concentrate their investments on domestic companies that can make the most from the favorable demographics in the U.S. Those who have benefitted from globalization “can still remember how that music used to make me smile.” Energy, basic material, heavy industrial, multi-national staple, and technology companies feasted on a weak U.S. dollar and made a growing stream of foreign revenue “dance” as the world suckled for ten years on China’s economic boom. Investors were “happy for a while.”

“But February made me shiver
With every paper I’d deliver
Bad news on the doorstep
I couldn’t take one more step”

The vote in Britain on June 23, 2016 has made everyone “shiver” and brought “bad news on the doorstep.” Stocks in the U.S. have fallen sharply on the news. Ironically, some of the most domestic companies we own are getting hit harder than the overall stock market. Homebuilder (NVR), network- affiliated TV station operator (TGNA) and U.S.-centric conglomerate Berkshire Hathaway (BRK) initially sold off more than the index itself. Large U.S. and primarily domestic banks like Bank of America (BAC) and Wells Fargo (WFC) declined more than any of our other holdings. It is enough to make you hestitate before you “take one more step.”

“I was a lonely teenage broncin’ buck
With a pink carnation and a pickup truck
But I knew I was out of luck
The day the music died”

This has been a difficult and “lonely” year for those of us who believe that companies that fit our eight criteria for common stock selection, and are priced at a discount to the average stock, should outperform. We are very aware how markets can go on for quite a while disagreeing with our long-duration view of things. However, when you own wonderful companies with strong balance sheets and long histories of success, you are never “out of luck” because of temporary stock market movements. The long-term future is the friend of the owner of a meritorious business, as long as you don’t get off the train too early in the journey.

“I can’t remember if I cried
When I read about his widowed bride
But something touched me deep inside
The day the music died”

In our opinion, Britain’s watershed change does not rank up there with the death of a spouse for the “widowed bride” of Buddy Holly, especially as it pertains to investors in U.S. common stocks. Much like economic recessions, the negative consequences of this decision and the death of the global infatuation shouldn’t stop you from being invested. We particularly want to own companies who stand to benefit from the U.S. being the only large developed nation in the world with more people between 25-35 years old than those age 55-65.

“Oh, and there we were all in one place
A generation lost in space
With no time left to start again
So come on, Jack be nimble, Jack be quick
Jack Flash sat on a candlestick
‘Cause fire is the devil’s only friend”